Sunday 25 September 2016

Can I buy a property now and pass it on to my daughter tax-free in three years' time?

Christine Keily

Published 06/03/2016 | 02:30

'When it comes to a transfer of an asset between spouses living together, the spouses in question may avail of so-called 'inter-spousal exemption' for Capital Gains Tax'
'When it comes to a transfer of an asset between spouses living together, the spouses in question may avail of so-called 'inter-spousal exemption' for Capital Gains Tax'

I am considering using a lump sum which I have to buy a property, which I would then pass on to my daughter in about three years. Are you allowed to buy a property and then transfer it into your child's name three years after the purchase without any implications for inheritance tax?

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Is there a limit on the value of the house that could be passed on tax-free in such cases and can you point me in the direction of the Tax Act that covers this?

Kay, Howth, Co Dublin

There is a valuable tax relief, known as the dwelling house exemption, which could allow your daughter to inherit the property you mention tax-free, as long as certain conditions are met. Your daughter may qualify for this relief, which is an exemption from Capital Acquisitions Tax (the tax paid on gifts or inheritances), if she continuously lived in the property you are considering passing onto her for the three years immediately preceding the date of the gift. That property must be a dwelling house and also her main residence during those three years.

She must also not have any beneficial interest in, nor hold any interest of, any other dwelling house (including holiday homes) at the date of the gift. In addition, she must continue to occupy the dwelling house for a period of six years from the date she receives the gift.

Finally, if you invest your money in a dwelling house, you must own it for not less than three years prior to the date you transfer it to your daughter, so she can avail of the dwelling house exemption. There is no limit on the value of the house in order to qualify for this tax relief.

For future reference and a full list of conditions to be satisfied, you may check section 86 from the Capital Acquisitions Tax Consolidation Act 2003.

 

 

I bought and renovated a rental property in 1989. I transferred ownership of this rental property to my wife in 2006 for IR£1 because I was to inherit another house, the family home, on the death of my mother. (To obtain a Revenue inheritance tax exemption, I could not have an interest in another dwelling at that time.) So that inheritance tax exemption was granted to me on the death of my mother in 2007.

We are hoping to sell this rental property now. Can I have ownership of the rental property transferred back into my sole name now? If so, am I still entitled to reduce my Capital Gains Tax (CGT) bill by the original cost price (IR£50,000), plus renovation costs, when I sell the property?

I spent IR£30,000 renovating the property in 1989. If I am not entitled to write these costs off the CGT bill when this property is sold, can my wife do so (if I leave the property in her name)? And what other deductions can be written off the CGT bill?

John, Ashbourne, Co Meath

When it comes to a transfer of an asset between spouses living together, the spouses in question may avail of so-called 'inter-spousal exemption' for Capital Gains Tax (GGT - the tax usually paid on any profits made from the sale of a house).

This would mean that the asset will be deemed to be transferred at such a value that would give rise to neither a gain nor a loss on this transfer.

The spouse acquiring the asset is deemed to take over the asset at the original date and for the original cost of the spouse who had first acquired the asset.

In your circumstances, although you transferred the property to your wife in 2006 for IR£1, for CGT purposes, your wife is deemed to have acquired it at your original date - that is 1989 - and for the same original cost you incurred back then (IR£50,000 plus IR£30,000 for renovation).

The same principles will apply if your wife now transfers the property to you. You will be deemed to re-acquire the property for the same cost (IR£50,000 plus IR£30,000 for renovation) and at the same date (1989) that your wife acquired it.

Based on the above, regardless of who the current owner of the property is, either you or your spouse will be still entitled to reduce the capital gain on the disposal of the rental property by the original base cost incurred, plus the renovation cost (that is, IR£80,000).

In addition, any incidental costs incurred by the owner of the property when buying or selling the property can be used to reduce the ultimate capital gain on the disposal of the property. Examples of such incidental costs are stamp duty, legal fees, auctioneers fee or advertising costs.

 

 

I am a PAYE taxpayer in receipt of a private pension and social welfare pension since 2006. My wife is in receipt of her dependent spouse allowance since 2006 and has no other income. She receives her weekly payment direct to her own bank account from the social welfare and has done so since 2008. Since 2008, I have returned my wife's income separately in the appropriate column of my Form 11 tax return form and an appropriate adjustment was made to my tax liability each year from the year ending 2008 to the year ending 2012.

During 2013, Revenue advised me that I had a tax liability of €15,000 due to the manner in which I had returned my wife's income during the above years.

Revenue said that her dependent spouse allowance was my liability for tax purposes and gave me two weeks to pay up. Revenue waived the interest. I paid up as I felt under pressure but I'm not sure Revenue was correct that I had a tax liability at all.

Was the Revenue correct in this case?

William, Gorey, Co Wexford

The social welfare system in Ireland is organised around the family. If you qualify for a social welfare payment (in your case, the social welfare pension), you will receive a payment for yourself and you also may receive a payment for a dependent.

When you qualify for a payment for yourself, this is a personal rate of payment. If you have a qualifying dependent who gets a payment, this is called a qualified adult payment.

Both the personal rate and the qualified adult payment are regarded as your income and only you, as the claimant of the social welfare payment, are entitled to the PAYE tax credit in respect of this payment. This is the position even if the qualified adult payment is paid directly to the dependent, that is, your wife.

Since September 27, 2007, the increased payment for a qualified adult in respect of State pension is automatically paid directly to the adult dependent and not to the claimant.

However, as outlined above, this does not change the fact that the income is regarded as your income for tax purposes and therefore it should be reported as such on a tax return.

If the income is reported as your wife's income, this will result in an underpayment situation, as has been your experience.

 

Email your questions to lmcbride@independent.ie or write to 'Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1'.

While we will endeavour to place your questions with the most appropriate expert to answer your query, this column is a reader service and is not intended to replace professional advice.

Tax and payroll director with Taxback.com

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